Organizational slack in decentralized firms: The role of business unit controllers

Raffi J. Indjejikian, Michal Matějka

Research output: Contribution to journalArticle

53 Scopus citations

Abstract

We study the determinants of organizational slack in large decentralized firms and focus in particular on how management accounting systems (represented by business unit controllers) affect slack. We rely on an adverse selection model to derive several predictions and to motivate our tests. Consistent with this framework, we find that organizational slack (measured by achievability of business unit managers' performance targets) is higher in settings where business unit controllers focus relatively more on providing decision-making information to business unit managers than on providing information for corporate control. We also find that organizational slack is persistent over time and positively associated with business unit growth, our proxy for the extent of information asymmetry between corporate headquarters and local business unit management.

Original languageEnglish (US)
Pages (from-to)849-872
Number of pages24
JournalAccounting Review
Volume81
Issue number4
DOIs
StatePublished - Jul 2006

Keywords

  • Business unit controller
  • Information asymmetry
  • Organizational slack

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

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